Introduction to International Payroll and Reporting. November 30, 2017

Transcription

1 Introduction to International Payroll and Reporting November 30, 2017

2 Instructions Dialing instructions will appear once you connect on the web. 15 minute Q & A at end of session. Use the chat feature to type a question. Need help? Call Two continuing education credits will be issued to CERP/CGMP designees ( info@cerc.ca for more information).

3 Thank You to Our Sponsor

4 Agenda Welcome & Introductions Presentation Conclusion Q&A

5 Today s Presenters OLGA MIKLAS Executive Director, KPMG LLP Olga is an Executive Director with KPMG in the Greater Toronto Area. She has more than 10 years of experience in the International Income Tax Area focusing on a wide variety of expatriate and personal cross-border tax issues. Olga provides compliance and advisory services to companies with global work forces. She has extensive knowledge and administration experience on both sides of the Canada-US border and worked on a number of global mobility policy review and development projects as well as assisted many clients with its implementation. Olga has solid experience in providing payroll compliance services to clients with mobile employees and business travelers. Olga s current and past clients include leading companies in the financial, automotive and consumer markets sector. Olga has a Bachelor degree in Commerce and Finance (2001) and a Master of Management and Professional Accounting (2003) form the University of Toronto. She has also obtained her US Certified Public Accountant designation from the state of New Hampshire in 2004.

6 Today s Presenters JENNIFER SANTOS Senior Manager, KPMG LLP Jennifer is a Senior Manager in KPMG s Global Mobility Services with over 16 years experience assisting with expatriate programs. Jennifer is one of the members of the Global Mobility Services payroll consulting team. Jennifer provides services to Global companies and their employees related to compensation issues that arise out of international job assignments. She manages all aspects of client engagement relationships and provides ongoing support to regional human resources contacts. Jennifer brings a wealth of knowledge to companies who require assistance with the cross-border payroll compliance in both Canada and the U.S. Together with her team, Jennifer manages various payroll areas such as review of taxable compensation matrixes, determination of taxable income and remittances, as well as assisting clients in meeting the payroll reporting requirements in both jurisdictions. Jennifer is a member of the Canadian Payroll Association. She has also obtained a certification in Accounting & Taxation at Ryerson University.

7 Agenda Introduction Basic principles of Canadian taxation Canadian payroll withholding requirements Taxable vs. non-taxable benefits Mobility policies and payroll implications Basic principles of tax equalization Q&A session

8 Basic Principles of Canadian Taxation An individual s tax residency status determines how he or she will be taxed in Canada: Residents of Canada are taxed on their worldwide income; and Non-residents of Canada are subject to tax on certain Canadian-sourced income. An individual s residence for Canadian tax purposes is a question of fact and must be determined based on all of the individual s particular facts and circumstances, specifically the amount of residential ties an individual has in Canada. It is not determined solely by the individual s citizenship status (as may be the case in other jurisdictions) or only by their physical location.

9 Basic Principles of Canadian Taxation Every person paying salary Person - Rules applicable to a resident corporation or nonresident corporation Paying - Who is the payer? Entity who pays or entity who bears the actual cost (after chargeback)? Generally, responsibility belongs to employer Who is the employer? Legal employer / Economic employer / Deemed employer Consider practical approach local entity to make remittances on behalf of the employer

10 Canadian Withholding Requirements Every person paying remuneration to employees working in Canada must withhold Canadian income tax at source in respect of their employees Canadian source compensation Withholding obligation applies to non-resident employers Withholding obligation applies even if the employee ultimately exempt from Canadian taxation under the Treaty Only exception is where a waiver is obtained authorizing no withholding Must also report Canadian source compensation and tax withholdings at source on annual information returns (T4 slip and T4 summary) Requires the non-resident employer to register and open up payroll accounts with CRA

11 Why is T4 Reporting Important? Penalties for noncompliance 10% of the taxes that should have been remitted (in certain cases this can increase to 20% if failure occurs more than once in a calendar year) Reporting penalties depend on number of T4 slips required to be issued # of T4 slips# of T4 slips

12 Why is T4 Reporting Important? Remittance shortfall of payroll taxes (e.g. EHT, HSF) For example EHT: 10% of the taxes that should have been remitted plus interest of 6% compounded annually (due to change quarterly) Increased risk of payroll audit Company reputation Risks to Employees with respect to personal tax return compliance

13 Taxable vs. Non-Taxable Benefits Relocation benefits Canada generally allows broader types of relocation benefits to be tax-exempt Canada does not limit to actual move trip, but can include home search trips, reasonable temp housing until new residence is available for occupation Relocation Allowances are 100% taxable in US, whereas Canada allows the first $650 to be tax-exempt Tax Payments of Employee Behalf In Canada, always fully taxable Repayments to employer Canada does allow repayments to offset income for T4 Box 14 purposes.

14 Taxable vs. Non-Taxable Benefits Interest Free and Low Interest Loans Taxable portion is the difference between the amount of interest that the employee would have paid on the loan at the prescribed rates minus the amount of interest that the employees actually paid in the year or no later than 30 days after the end of the year Counselling Services The fees that employer pays to provide such services as financial counselling or income tax preparation are considered taxable benefit Employer-provided Group Term Life Insurance In Canada, always fully taxable

15 Employment at a Special Work Site Benefits of board, lodging and transportation would be tax exempt per ITA 6(6) if ALL of the following conditions are met: Employee s duties required him/her to be away from the principal place of residence to be at the special work site Duties at a special work site were of a temporary nature Employee kept a self-contained domestic establishment as his or her principal place of residence throughout the period and it was available for the employee s occupancy and not rented out Benefits of board & lodging was provided for a period of at least 36 hours If the above conditions are met, Form TD-4 must be completed in order for the applicable benefits to be tax exempt.

16 Mobility Policy Tax Reimbursement Tax Protection Tax Equalization

17 Tax Reimbursement Policy Employer provided plan to reimburse an employee for the additional cost of a taxable allowance or foreign assignment It is an HR policy and not tax law The purpose of the policy is to relieve the tax burden on an employee due to relocation or foreign assignment. Potential increase in tax liability arising from: Relocation Expenses Housing reimbursement COLA Other allowances Higher tax rates Higher social security taxes Continuation of home country pension

18 Tax Protection Policy Process of protecting the assignee against a higher tax liability than a home country counterpart The policy may only equalize the assignee s personal income up to a percentage or, in some cases, not at all.

19 Basic Principles of Tax Equalization The tax equalization process is designed to ensure that an assignee bears no more and no less tax than they would have if they had not gone on assignment. Neutralizes the tax impact of an international assignment. An assignee should not experience a substantial financial gain or loss from going on an international assignment. Assignee maintains same tax burden as if remained in home country. The company bears the tax impact of the assignment (i.e. tax on assignment benefits and tax rate differential). Vice versa, a reduction in worldwide taxes of the employee is credited to the company.

20 Basic Principles of Tax Equalization Assignee is tax equalized to their home location Switch from actual tax withholding to hypothetical The company pays the assignee s host location tax liabilities The company pays the assignee s home location tax liabilities on assignment related allowances TEQ calculation is prepared at the same time as the actual tax return A year end TEQ reconciliation is performed to compare the hypothetical taxes withheld during the year with the actual income tax that the assignee should have paid in their home location The TEQ settles the tax balance between the assignee and the company

21 Hypothetical Tax Represents the tax that would have been paid on the assignee s stay-at-home compensation had they not been on assignment Is NOT an actual tax remitted to the government (it is a negative item of income) Can include federal, provincial/state, local and/or social taxes Generally, an initial hypothetical tax calculation is prepared at the start of an assignment using the most accurate information available

22 Tax Gross Up Refers to a calculation of host country taxes for payroll purposes Current year gross up method or a 1 year rollover method The host country taxes paid on behalf of an assignee is considered a taxable benefit and are subject to tax. A gross-up calculation is prepared to include the taxable benefit in income

23 Wrap up QUESTIONS?

24 Contact Information KPMG LLP Olga Miklas T: E: Jennifer Santos T: E:

25 Thank You to Our Sponsors

26 Future CERC Events Regional Events International Payroll & Tax Webinar: Dec 06 &13 Central Christmas Mixer: Tuesday, December 5, 2017 Calgary Christmas Mixer: Thursday, December 7, 2017 CERC 2018 Annual Conference September 16 18, Fairmont Queen Elizabeth Montreal, QC

27 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.